Investors and consultants alike are full of excitement about the success potential of start-ups. Phrases like “there’s never been a better time to launch a start-up” pop up frequently.

“But the reality is that although start-ups are doing better than established companies, they are only doing a little bit better,” says food industry analyst Julian Mellentin, director of New Nutrition Business.

“The success rate among start-up brands is only slightly higher than that of brands from established businesses.”

To address the absence of data on rates of success or failure for start-ups, New Nutrition Business analysed its database of start-up brands, going back to 2002, to shed light on their performance.

The sample comprises 267 US, UK and Australian food and beverage start-ups who launched products in the years 2002-2016. The sample focuses on snacking, beverages and dairy (all strongly over-represented among start-ups) as well as kids’ products.

The recent analysis found:

An overall start-up success rate of 67% (almost the same result as 2016)

An overall failure rate of 33%

“But if you define “real” success as distribution in mass-market retailers, as opposed to being in niche or regional distribution – which is what most shareholders want – then the success rate falls to 41%,” notes Mellentin.

For comparison, New Nutrition Business also analysed a sample of 288 brands from established companies – not start-ups – that were launched in 2013 and listed that year in Mintel’s GNPD new product database. They came from the same countries and categories as the start-up sample.

Their overall success rate (whether a brand was in mass distribution or niche) was 54%. “That’s less impressive than the start-ups, but not so far behind,” says Mellentin.

Snacking the clear winner

Mellentin says that if you want to maximise your chances of success and reduce your risk of failure, make your product a snack. “If you had launched a start-up food or beverage business during the years 2002-2016, you would have been most likely to succeed if your launch was a snack or a mini-meal,” he says.

The success rate for snacking start-ups is an impressive 72.5%, compared to 53% for established companies.

That makes sense to Mellentin: “Snacking makes good sense as a place for a start-up – the products are usually shelf-stable and have a long shelf-life, eliminating the supply chain and wastage problems that kills many start-ups in chilled products.”

ENDS

* A cut-off date of 2016 was used is because for anything more recent, it’s too soon to say whether a business or brand is doing well or struggling.

In an attempt to capitalise on the wellness trend, major UK retailer Sainsbury’s announced that it is introducing what they call ‘wellness hubs’ in stores this winter. The supermarket chain will double its range of wellness-oriented products, while bringing in new specialist brands. The aim is to help health-conscious customers fuel their healthy lifestyle quickly and easily, without having to run between different aisles or retailers.

The concept was trialled in five stores across England in November, and an additional two stores were added at the start of January. If successful, the retailer will bring the concept to more stores during 2019.

So what will a so-called wellness hub entail? According to Sainsbury’s the aisle will include “specialist products” such as activated nuts, hemp water, superfood powders, bone broths and drinking vinegar. And the supermarket will become the only one in the UK to offer exclusive wellness brands such as No 1 Kombucha. Sainsbury’s hopes to offer a wellness portfolio so extensive that customers won’t have to shop anywhere else – not even in specialist health food stores such as Planet Organic or Holland & Barrett.

Consumer response to the initiative has been lukewarm. Shoppers in Cambridge were surprised to find sugary brands like Belvita in the wellness aisle, but Sainsbury’s has responded by saying that these products were never intended to be seen as part of the wellness hubs. The retailer did however agree that additional signs clarifying this were necessary.

Others have complained that the idea is “gimmicky”, that it makes wellness appear too detached from “regular” food and that it promotes quick fixes while failing to tackle the underlying problem of a bad diet. Some of the brands included in the wellness aisles have been criticised for being over-processed and too specialist – intended for the hardcore athlete and not the average consumer.

But consumer reactions are not all negative, and some welcome the idea as a positive addition to their local supermarket.

The world’s biggest cities are magnets for internationally-mobile, highly-educated people like Russian-born Ksenia, aged 27, who lived in Norway and Italy before moving to London three years ago. Food explorers like Ksenia – who is trying to eat healthily “without obsessing about it” – have driven the fragmentation of markets and the emergence of new brands. NNB shopped along with Ksenia at the Kensington, London branch of Whole Foods Market, the “El Dorado” of retailers for healthier food and beverage start-ups.

“I only come here about once a month, it’s a treat,” says Ksenia of Whole Foods Market. “I know most things are overpriced and I can’t afford to do my groceries here every week, so I come to get special things or products I can’t find anywhere else, plus it’s always exciting to see new brands and taste the samples.”

Before we shop, we eat at Whole Foods’ “food stall market” where Ksenia chooses tofu to go in her wok bowl. She says she is not vegetarian nor vegan, but is “getting all my protein from fish and natural stuff like beans, I’m avoiding dairy because it makes me bloated and meat too.

“But I don’t usually have any of those vegan burgers or other ‘meat’ type of products,” she adds, “because I ate it once and got a really bad allergic reaction to it, which didn’t surprise me when I saw the long list of ingredients they have! I prefer to keep it simple”.

Once in the main supermarket, the options are many, from a hot meal buffet to a wine tasting bar area and a fish section with “amazing presentation”. “I come here for specific things, but it’s always nice to see what else is new,” says Ksenia.

We pass the meat section, where Parma ham and a variety of meat snacks are displayed: “Nowadays I rarely eat meat but I think this is one of the few places where you know exactly where the meat is coming from, so if anything I would buy it from here,” she says.

The large dairy section boasts brands not often found in mainstream retailers. “I want to get a vegan cream cheese that I can find here and sometimes in other organic shops, I tasted it in a vegan festival and it was really good, the best one I’ve had! Plus, it’s from this small island in Scotland, so I’m sure they use good ingredients,” says Ksenia. Like most other plant-based cheese alternatives the first ingredient is coconut oil. “So is coconut oil ok? I’ve heard it’s very healthy but also read somewhere that it’s not as healthy as people think.”

Next we pass shelves full of kefir and other probiotic beverages. “Did you know that kefir is traditionally from Russia? I’ll try this one since I don’t want the normal dairy ones,” Ksenia explains as she grabs a coconut milk probiotic drink.

We scan through the breakfast cereals and snack aisles, where Ksenia notices a courgette and cacao granola but leaves it because “granola is so easy to make, I make my own all the time”. Dried mango and pineapple snacks make it into her basket: “They are naturally sweet from the fruit so a good treat, of course it’s super expensive but I don’t buy it all the time, just when I come to Whole Foods because they have the organic ones”.

As we’re heading to the check-out we notice a buffet of mochi, the small ice-cream balls covered in a chewy glutinous rice layer. “I love mochi!” Ksenia exclaims, filling her tray with various flavours.

Next we consider a great wall of kombucha drinks. “Do you know if it’s really good for you? Doesn’t it have lots of sugar in it? Is it made from juice?” Ksenia asks. “Well, I guess I can always try it and see if I feel a difference.”

Shopping done, Ksenia admits she’s “so looking forward to trying these things, I can’t believe how excited I feel about having new foods and products!”